Cap Rates Don’t Tell You Where the Risk Is

Cap rates are often treated as a shortcut to value.

Lower cap rate feels safer.
Higher cap rate feels riskier.

But cap rates don’t explain where the risk actually sits.

Two properties can trade at similar cap rates while carrying very different exposure:

• lease rollover timing

• tenant quality

• capital needs

• income durability

The number reflects a pricing outcome—not the structure behind it.

Relying on the cap rate alone can create a false sense of precision.

The discipline is in understanding what the income depends on—not just how it’s priced.